Hot Chinese inflation: As tipped in Crikey a couple of days ago, that story on the Xinhua website warning of a possible rise in the annual consumer price inflation rate in China in April was spot on. The tip was 2.8%  and 2.8% was the figure, up 0.4% from March and above the 2.7% yearly rate in February. More worrying was the 0.9% rise in the producer price index to 6.8% from 5.9% in March. That’s the one that’s got a lot of Western analysts concerned. Could China now start exporting product price inflation to the West?

China’s hot property: Chinese property prices in 70 cities rose 12.8% in April from the same month in 2009, up from the 11.7% rate in the year to March and 10.7 in February. That’s hot, and against the spate of tightening moves in April, but not as hot as Australia where the rise in the eight major capital cities was 20.1 in the year to March, according to the Australian Bureau of Statistics. It was the 11th consecutive month of year-on-year rises after seven months of declines in late 2008 and early 2009. Real estate investment in the first four months of the year rose 36.2% compared with the same period last year, up from the 35.1% rate in the March quarter.

Trade still strong: China revealed a trade surplus of $US1.68 billion for April, down 87% on a year ago, but up from the $US7.2 billion trade deficit in March. Chinese exports in April totaled $US119.92 billion, up 30.5% from a year ago, and imports rose 49.7% to $US118.24 billion  Taking the first four months together, China’s imports and exports $US855.99 billion, up almost 43% from the first four months of 2009. Exports accelerated in April from March when they rose 24.3% (down from 31% in January and February). The rate of growth in imports in April slowed markedly from the 66% jump in March.

Iron ore imports down: China’s imports of iron ore fell 6% in April to 55.33 million tonnes, from 59.01 million tonnes in March. Net steel exports (which had been net imports in April 2009), 2.81 million tonnes in April, up 65% from March and the highest monthly volume since October 2008. China’s imports of copper fell to 436,345 tonnes in April from March’s 456,240 tonnes.

Markets melt up: Well, if you can have a markets meltdown, why not a melt up, as we saw overnight with the relief rally to beat all relief rallies. The Financial Times said it was the biggest surge since Citigroup was rescued. Gold was sold off, oil bought, shares chased, the market collapse of last Thursday was ignored. This was “good” contagion, as opposed to the bad stuff last week. But nothing has changed except the European Central Bank, the European Commission, the eurozone countries and the IMF have all put their hands in their pockets to bailout the infirm, the lame and protect the strong among the 27 members of the EC or the 16 countries in the zone. Remember the rally wasn’t in reaction to good news, it was a reaction to the belief that really bad stuff wouldn’t now happen. Not good for long-term confidence.

Europe rescued, hold all rate rises: So the prospects for an interest rise in the eurozone is off for a long time, several years in fact. The €720-750 billion rescue of the euro and the moves by the European Central Bank to buy bonds from any government or company in trouble and facing repayment pressures, means the last thing business and governments will want to see is a rate rise. But the euro will fall, despite yesterday’s sympathy rise. Barclays is tipping a rate of $US1.20. “We remain EUR bears and continue to forecast EUR/USD to head lower to 1.20 in the coming three months”. Others are talking parity with the greenback and pretty quickly (next 2011, not in five years). The euro rose to $US1.30 overnight, then fell back to $US1.27 or thereabouts in late trading.

But Europe isn’t out of the woods: The potential liquidity problems have been fixed for now, but the solvency question raised over Greece, Spain and Portugal remain. The money will have to be paid back eventually, and before then, meaningful reductions in deficits and debts will have to be made in all 16 countries, plus in the UK and other outriders, if there’s not to be a re-run of the past four months. Something will have to give, either dramatic budget cutting and spending reductions, or more ordure gets flung against the fan. Greece is still the best option; no one seriously can believe that after three years it will be able to start  repaying debt, not with a debt to GDP ratio of well over 130%, after years of recession and rising social unrest. A debt rescheduling (quasi default) is on the cards, as it should be to share the pain across everybody involved.

The gnomes have it: Konrad Hummler is the chairman of the Swiss Private Bankers Association (That makes him a Big Gnome) and late last week he estimated that banks would need to write down the value of their Greek bonds by 30%-50%. Greece has about €300 billion of sovereign debt. Brutal, but about right size. That’s why the euro rescue was necessary and why cuts now need to be made elsewhere. If nothing is done, a bigger and more violent replay of the past four months will happen very quickly. But if Greece is forced to start restructuring its debt, as it should be, then holders of debts with Spain, Italy, Ireland, Portugal and the UK will ask “are we next”, and panic. There’s a lot of self-fulfilling stuff going on (negative feedback loops).

Welcome Sydney’s new Macquarie: Macquarie Bank and its control of assets such as roads and Sydney Airport, used to be the whipping boy for politicians. Well, stand aside the Millionaire’s Factory, here’s the new Macquarie, aka Transurban Group, which yesterday bought Sydney’s Lane Cove Tunnel for $630.5 million, giving it a strong lock on road traffic to and from the fastest growing parts of Sydney’s south-west, west and north-west.

Transurban encircles Sydney (aka Sydney’s road octopus): The company also owns the M2, which connects directly with the Lane Cove tunnel, and it owns 50% of the M7 ring road, which connects with the M 2 at the other end. In addition it owns 50% of the M5, which links to the southern end of the M7 and carries traffic to and from the city’s south-western suburbs. And it also owns 75% of the Eastern Distributor, which links to the Harbour Bridge, eastern suburbs and airport and M5. But it might not come to that, three big shareholders owning 42% (before the funding of the tunnel buy) meet Transurban management and board this afternoon to discuss a rumoured new offer above the $5.25 that was rejected last November.

Nice work if you can get it: Former Westpac CEO Bob Joss continues to go from strength to strength, not far from the public eye. He joined the board of Citigroup last July and overnight was revealed to have a sort of conflict of interest (which he denied). According to this report on Bloomberg,  Joss will be paid $US350,000 for as little as three weeks’ work.  The report said: “Joss, a former Well Fargo executive and Stanford University business school dean who joined the board in July, will advise on projects from time to time,” vice-chairman Lewis Kaden wrote in an agreement dated April 5, according to a filing on May 7. The annual consulting fee is for “a minimum of approximately three weeks,” the filing said.”  Bloomberg quoted Joss as saying “This is kind of an interesting situation, where you’re not management, and you’re not independent, but you’re a director. I’m comfortable that I can handle that, but if it’s not working right, then we’ll undo it.”  Bloomberg also pointed out that Joss will be the highest paid Citi director. As well as the $US350,000, he received $US225,000 in cash and deferred stock given each year to all outside board members.

Peter Fray

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Peter Fray
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